April 21st, 2010 – Morning Speed Retirement Webinar

Daily Q&A With Greg Roy

Question:
Greg; recently you recommended the purchase of Aug 40 Puts on the Q. I bought some; I am also holding some Dec Puts. My question is would it be prudent to purchase inexpensive Sep 25 Puts?

Answer: I wouldn’t do that, and here’s why. My target for the QQQQs this summer is 30, and time frame before the end of August. From there I expect a bounce, before falling lower into late this year. I do not believe the September 25′s will get close to the money. If you are looking to buy some inexpensive puts on the QQQQs with a strike price of 25, I would be looking at December for expiration, not September.

Question:
Hi Greg,

I was wondering if it would be possible to go back to two webinars a week? Since they are only one hour long and with the markets as they are, I think most of your subscribers would appreciate more timely updates as to what is going on.

Since you had a technical problem like last week, it will now be two weeks since I have seen an update and I think most everyone else feels the same.
Thanks!
Sincerely,
Jeff Spillman

Answer: Within several weeks I am planning to go back to two webinars per week. I am happy to hear you like my updates.

Question:
my request, if possible to (again) spell out how I (we) can emulate the success of the single mother that you were able to mentor ?
(I too am an unemployed single Father of 4, who live with me, and am praying that your service will pull me out of my quagmire; especially as we presently seem to have a golden opportunity of the century just ahead of us !!!)

Presently I have 1 XLI Aug 29 Put purchased at 1.29 and is doing excellent
I hoped to invest $1000 very shortly, on your recommendation, to take advantage of the small expected ‘recovery bump’ perhaps this week,
and with the ‘profits load the boat’ in the anticipated downhill in August,
but I’m uncertain as to which specific Puts to purchase ? VIX or QQQQ ?

Last year, I made a fatal error with your recommendations and got wiped out (due to my greed and over speculation).

I am very much enthused by your convictions and favour putting all my marbles in your corner!
So if possible I look forward to your help – which you are already providing to all of us – ‘except’ that I am unable to do covered calls and depend on straight forward Puts/Calls

I look forward to any further assistance you may be able to provide.

Answer: We are facing a long Primary Wave 3 down in the stock market. Just as Primary Wave 1 down and Primary Wave 2 up were over a year in length, I expect Primary Wave 3 down to last at least a year as well. There will be many opportunities within that year to make very large gains using options. You must be patient to wait for those opportunities, and not get greedy or try to force the profits. I know for fact, 100% certainty, that the economy is rapidly deteriorating. That does not mean with 100% certainty that the stock market will go straight down also. I’ve been forecasting an economic depression. Not because it is what I want, I actually want the exact opposite, but becuase that is what is unfolding. Things are going to get a lot worse. Collectively, the living standards of Americans are going to fall significantly. If you can adjust and get ahead of the trend, you’ll fare much better. Learn to not only live, but prosper in tough times. with every problem comes an opportunity. Business is nothing more than finding a need and filling it. There will be lots of needs in these tough times. If you can find a way to fill those needs, you’ll prosper.

Question:
Should we roll over our Aug. 40 QQQQ puts into the SEPT. 40 puts ???

Answer: I am not personally doing that. Obviously, that would double the amount of time for the market to reach our targets, but if my EW count is correct, and I am seeing no signs that it isn’t, we will have a large bout of selling dead ahead.

Question:

Greg,

In your next webinar, please talk to why you would disagree with what the author says about the BDI not being a good leading market indicator. See link below.

http://www.wikinvest.com/wikinvest/api.php?action=viewNews&aid=1512684&page=Index%3ABaltic_Dry_Index_-_BDI_%28BALDRY%29&comments=0&format=html

Answer: OK. will do that in Thursday evening webinar.

Faire le Pont

Summer is icumin in and stock markets are suffering from low volumes and indecisiveness. It’s not the bulls or the bears these days; it’s the sloths. France, which celebrated its national holiday yesterday, is still recovering from the firehouse balls and nothing will happen until next week.

From Institutional Investor, which I used to write for in Paris, I got this:

In the article titled “Al Gore’s Fund Suffers and Green Investors are Seeing Red,” which appeared on our web site on July 13 and 14, we wrongly stated that the Generation Global Equity Fund was, according to its Securities and Exchange Commission filings, worth only $2.4 bn at the end of March 2010, having originally been worth $5.3 bn when it was closed to new investments in 2008.

We accept that these figures are wholly incorrect. The Fund’s SEC filings state the value of the Fund’s U.S. investments only (which at the end of March 2010 were approximately $2.6 bn), and not the value of the whole Fund. We understand that the value of the Fund at that date was $5.6 bn, and that the Fund has therefore grown in value since 2008. We apologize unreserverdly to Generation.

There’s more but you get the drift. II managed to set off legal pursuits by the veep’s employer without even mentioning Gore’s curious sex life, his embonpoint, or his split from Tipper.

More about writing English, correct statistcs, and other corrections follows for paid subscribers. News from Spain, Portugal, the Netherlands, Britain, South Africa, Israel, China, India and Panama.

Allocation and Taxation

Vivian’s planned Portuguese paperwork procedures took less time than anticipated so you are getting a blog after all today…

First a message from the anti-Vivian, Leila Heckman. Vivian does bottom up and Heckman is the pioneer of top down country allocation research and an expert in quantitative analysis, macro economics, stock selection, and portfolio optimization with expertise in developed, emerging and frontier markets. She asks:

Over the past month, investments in Europe have increased 7-8%. Have investors’ worries about investing in the European market and contagion dissipated, or have they just quieted for the moment? Is Europe poised to bounce back?

According to Heckman, now Senior Director of Mesirow Financial, people are quick to forget crises, including those in the financial markets. She thinks while Europe’s bailout will likely take place over an extended period of time, there are several positive market drivers indicating that there are good investment opportunities now.

Currently, Heckman believes the most attractive European markets include: Turkey, the Netherlands, Spain, and Norway.

Heckman has over 20 years of experience specializing in country allocation modeling and international equity investing. Previously, she was the senior managing director and head of international equity for Bear Stearns; founder and CEO of Heckman Global Advisors; and head of global asset allocation for Salomon Smith Barney. Her Interactive model is built on a scoring mechanism. Each month it compares the markets under coverage on the basis of quantitative investment factors that have been shown to convey information about future equity returns in research by academics and practitioners, including ourselves. These indicators include valuations, growth indicators, macroeconomic indicators, and measures of momentum. The factors and the weights we put on each one are shown below. Each month statistical scores are computed for each factor, and a total score is computed for each country as the weighted average of the individual factor scores. The weights on each factor are determined by the strength and reliability of each factor in back tests. Each country then gets an allocation relative to the benchmark roughly in proportion to its total score, with restrictions on the maximum allocation to avoid unrealistically large exposures. Each month performance of the hypothetical portfolio is compared with the benchmark.

Here is another important note from Information Line, a hard money newsletter, of interest to all US investors, by Vernon Jacobs CPA. He writes that the Foreign Bank Account Report form used by the Dept of the Treasury for many years to collect information about American banking and investment accounts overseas, which have to be reported if they total more than $10,000, is about to be supplanted by new rules. Mr. Jacobs writes about the Housing Act to Restore Employment (HIRE):

“Questions about what must be disclosed on the FBAR form may soon become a moot issue. The recent HIRE act incluedes a new requirement to report foreign financial assets – which is much broader than foreign financial accounts. This new form is to be effective for tax years beginning after the effective date of the HIRE act which was March 18, 2010.

“For most individuals, that means it will be necessary to discolose any foreign financial assets with their 2010 income tax return – but only if the total of those assets exceeds $50,000 at any time during the year.

“Unlike the FBAR form, the new and expanded report of financial assets is to be included with the income-tax return of the ‘person’ that has foreign financial assets that must be reported. The law specifically mentions that the report should include information about foreign securities, financial instrucments or contracts and any ownership interest in a foreign entity. The law also gives very broad authority to the IRS to develop regulations to implement the law and to exclude assets that are being disclosed in other reports.

“Even so, it seems likely that there will be a duplication of reporting in the new HIRE act asset report and the FBAR form. One of them goes to a part of the Treasury Department that is separate from the IRS and is not part of an income-tax return. The new asset report will be required as part of a tax return.”

For his readership, Mr. Jacobs then worries about how holdings of gold bullion or silver will be dealt with under the new rules, which probably is irrelevent to most of us. Mr. Jackobs has written a half dozn books on international taxes and writes the twice-monthly International Wealth Protection Monitor newsletter. He is producing a new edition of his Guide to Reporting Foreign Financial Accounts. www.vernonjacobs.com Information Line is published by info@assetstrategies.com

Double Dip or Not

Reader PL asked if there will be a double dip. I do not know. But here is what Stephen Taub of BondsonLine learned from brokerages:

-Barclays is skeptical that we are in for another economic decline. So, it recently advised clients to continue accumulating stocks on corrections, favoring sectors with a strong demand base across the major economies.

-Credit Suisse Securities recently told clients we are in an environment of healthy corporate balance sheets and a fair amount of excess cash, but a decidedly un-exciting medium-term growth outlook for the average US corporation. As a result, it expects U.S. corporations will increasingly focus cash flows on increasing dividend payments and share repurchases.

-Bank of America Merrill Lynch reminds clients the strong role dividends have played over the years. “If dividend tax rates stay aligned with capital gains rates, we think companies will raise dividend payout ratios significantly over time.”

Note that there are two meanings for double dip, one for the economy as a whole, and another, quite different, for the stock market. The two do not move in phase.

Here is a bullish take from Steve Chun of Miller/Howard Investment research:

“There are some interesting features in the current landscape that may auger well for equity investment–which 2009 amply demonstrated is not all that closely correlated to the larger economy in the intermediate term. Corporate cash and noncorporate funds available for investment (even excluding funds that might be switched from bond positions) have never been higher, measuring in the multitrillions. The rate of improvement in corporate operating margins has grown faster than any period for which we have data.

Astonishingly, some sectors such as Technology and Consumer Discretionary show margins that are off the charts on the upside, higher than ever! Corporations are as lean as they have ever been, and they have more cash than they’ve ever had. This is a nice prescription for an era of mergers and capital expansion if necessary (though capacity is fairly ample). The former would shrink the overall capitalization in the market, a market that is already rather small compared to the funds that could be available for equity investment, as we’ve pointed out on a number of occasions, if those funds were of a mind to get to work.

“Cash available, rapid margin improvement, moderately negative investor sentiment, and the help that might come from still-growing economies to the south and east of us could make for a potent brew boosting stock prices—a configuration that tends to get lost in the constant news flow about sovereign debt troubles, tax increases, and an overall ‘Age of Austerity.’” Miller/Howard is at (845)679-9166.

Moody’s today downrated Portugal by 2 notches to A1 while citing weak growth and mounting debt. It said the reform measures will take time to kick in.

The euro today did not collapse against the greenback on the news. It may be that panic about the single currency has played out. Or it may be that poor US May trade figures (showing a mounting $42.3 bn trade deficit, mostly with China) kept the dollar down. More about China for paid subscribers below thanks to a special survey shared with us.

Chartists are carefully watching gold. The precious metal has apparently hit its trend line 5 times according to Dutch analyst Charles Nenner, which may signal a reversal. But he is sititng on the sidelines all the same.

Your editor will be doing a tour of the River Duoro highlands east of Porto next month, her contribution to Portuguese recovery, thanks to a 30% senior price break in the government-sponsored network of Paradors, and the offer of an air-conditioned mini-car at the same price as a hot one. Paradors are hostelries built in old castles and convents to encourage tourism in remote regions. They were built under Salazar in Portugal, imitating the Pousadas built by Franco’s Spain. Even without the discount most of them are great bargains. Your credit card only gets swiped when you sign out, so I am hoping for a weaker Euro.

Switzerland struck a blow for liberty by freeing French-born film director Roman Polanski rather than shipping him off to the USA for a trial on very old statuatory rape charges. Having given way over secret Swiss bank accounts I guess they had to find another way to show their independent spirit.

More from China, Spain, Britain, Research Triangle, Germany, Australia, India, and Israel for our paid subscribers follows. Join them. Your portfolio will be grateful.

To become a paid subscriber, click here now for more details…

The Dutch Octopus

Wednesday is Bastille Day in France and there will be no newsletter that day, because I have personal business to attend to.

Today our pro-Dutch reporter is preparing an octopus stew by chopping up lots of garlic while her buddies blow vuvuzelas. A German octopus correctly forecast every single winner in the World Cup which ended yesterday. with Spain the champion. Meanwhile an economist panel, having rightly predicted Spain would win its first-ever Mundial in a first poll, then revised its figures to produce a muddled message

It reminds me of Harry Truman who said: “what I need is a one-handed economist.” But an 8-handed creature, despite another octopus’s brilliant foresight (or perhaps because of it), is being sacrificed in Amsterdam.

Your editor thinks the best team won. Dutch fouls and far kicks tried to stop the Spanish who advanced with brilliant handovers and clockwork passes. The best moment was the arrival of 91-year Nelson Mandela, dressed for the South African winter in fur coat and hat.

The French are in soccer disgrace after their team lost its only match because les bleus turned on their manager and refused to practice. French chefs still make very good octopus stew being creative and self-indulgent, insubordinate and egotistical. This works better in cooking than in football.

The low point of the World Cup was the murder of 64 Ugandans watching the final game at two different sites. They were attacked by terrorists with a grievance not related to the game, reportedly from Somalia. As heightened security makes it harder to murder Israelis, Americans or Europeans, the Al-Queda terror machine is turning on softer targets like African sports fans.

In the market today, bad news is good news, for example that BP is trying a Notre Dame pass to try to stop the oil spewing into the Gulf of Mexico, and also may cede shares to a Chinese takeover bid. It will sell its Alaska crown jewels to Apache Corp.

And good news is bad news. Banco Santander is being penalized for plans to further expand in South America and for its purchase today of the German branch network of Skandinavska Enskila Bank. These are marks of its management’s confidence in the STD balance sheet.

Your editor however is still frightened of the Spanish banking sector, however enamored of Spain’s football prowess.

So today paid subscribers are going to be told about a German specialty chemical stock to buy. It will have to be bought with a specialzed brokerage for international trading, like HSBC (my bank); Euro-Pacific Capital (Peter Schiff’s firm), or Lassalle St., a specialized brokerage whose principals are subscribers to this newsletter (tel: 407 539 1004). I could not do the trade with E-trade and my trying to do so is why this blog is late. We also have news from France, Britain, China, and Israel.